San Francisco (AP) — A Silicon Valley judge began questioning potential jurors Tuesday to hear allegations that Elon Musk cheated Tesla investors by claiming in a 2018 tweet that he had lined up ﬁnancing to take the electric automaker private.
The tweets fueled a rally in Tesla’s stock price that abruptly ended a week later after it became apparent that Musk did not have the funding for a buyout after all. Investors then sued him, saying that Tesla shares would not have swung so widely in value if he had not dangled the prospect of buying the company for $420 per share.
Musk’s tweet also attracted the attention of securities regulators, who concluded that it was improper. In a settlement, they forced him to pay $40 million and required him to step down as Tesla chairman. He has since contended that he entered the settlement under duress and maintained that he believed he had locked up ﬁnancial backing for the buyout during meetings with representatives from Saudi Arabia’s Public Investment Fund.
Musk, who purchased Twitter in October for $44 billion, continues to serve as CEO at Tesla and derives most of his wealth and fame from the company.
The trial hinges on an Aug. 7, 2018, tweet in which Musk claimed he had lined up ﬁnancing to pay for a $72 billion buyout of Tesla, which he then ampliﬁed with a follow-up statement that made a deal seem imminent.
But the buyout never materialized, and now Musk will have to explain his actions under oath in a federal court in San Francisco. The classaction lawsuit was ﬁled on behalf of investors who owned Tesla stock for a 10-day period in August 2018.
The trial’s outcome may hinge on the jury’s interpretation of Musk’s motive for the tweets, which U.S. District Judge Edward Chen has already decided were false.
The judge dealt Musk another setback on Friday, when he rejected Musk’s bid to transfer the trial to a federal court in Texas, where Tesla moved its headquarters in 2021. Musk had argued that negative coverage of his Twitter purchase had poisoned the jury pool in the San Francisco Bay Area.
Before Chen summoned 52 people for the jury selection process, a lawyer for Musk reiterated his concerns about potential bias.
“We have grave concerns about sitting a fair and impartial jury,” said Alex Spiro, who has also represented Musk in other legal battles in recent years.
The judge agreed that eight prospective jurors who had expressed extreme misgivings or enthusiasm about Musk in pretrial questionnaires would be questioned in private to reduce the chances of affecting the opinions of other people in the courtroom.
Musk’s leadership of Twitter — where he has gutted the staff and alienated users and advertisers — has proven unpopular among Tesla’s current stockholders, who are worried he has been devoting less time steering the automaker at a time of intensifying competition.
Those concerns contributed to a 65% percent decline in Tesla’s stock last year that wiped out more than $700 billion in shareholder wealth — far more than the $14 billion swing in fortune that occurred between the company’s high and low stock prices from Aug. 7 to Aug. 17, 2018, the period covered in the lawsuit.
Tesla’s stock has split twice since then, making that $420 price worth $28 on adjusted basis now. The shares closed last week at $122.40, down from the company’s November 2021 split-adjusted peak of $414.50.
After Musk dropped the idea of a Tesla buyout, the company overcame a production problem, resulting in a rapid upturn in car sales that caused its stock to soar and made Musk the world’s richest person until he bought Twitter. Musk dropped from the top spot on the wealth list after a stock market backlash to his handling of Twitter.